Sanctions on Russia may not hit India’s trade. But there are concerns
Russia Ukraine crisis: Indian government officials are currently studying the punitive measures announced by the US and its allies to determine the impact they will have on India.
Economic sanctions imposed on Russia by the US and its allies may not directly affect India’s global trade as New Delhi officially acknowledges only UN sanctions, though spiralling energy costs due to supply disruption is an immediate concern, three people with direct knowledge of the matter said.
India is not a member of blocs such as the North Atlantic Treaty Organization (NATO) or the European Union (EU) and hence sanctions announced by countries such as the US, the UK and EU members following Russia’s attack on Ukraine aren’t binding on it. India doesn’t recognise any unilateral sanctions, the people added requesting anonymity.
“Although India favours dialogue over military solutions, the current crisis is due to a legacy issue. Prime Minister Narendra Modi on Thursday told President Vladimir Putin that differences between Russia and NATO can only be resolved through honest and sincere dialogue. India is, however, watching every development,” one person said.
Officials from the external affairs and commerce ministries and other departments are currently studying the punitive measures announced by the US and its allies to determine exactly what impact they will have on India.
US sanctions have targeted leaders close to Putin and Russian banks, including the country’s largest bank, Sberbank, and are aimed at limiting international trade with Russia. The UK’s sanctions are aimed at freezing assets of Russian banks and also target Rostec, the country’s largest defence company, while EU sanctions will end Russian banks’ access to European markets.
“There will be implications for India but we need to see to what extent. We have only seen announcements but we are yet to see the fine print of the sanctions. A close examination of the matter is already underway,” a second person said.
A third person said: “Russia is an age-old friend of India and it is an important ally because of strategic reasons, and trade between the two countries is not very significant. However, Russia is a major producer of oil and gas. Hence, any supply disruption means rising cost of energy for India,” a third person said.
Russia’s deputy chief of mission in New Delhi, Roman Babushkin, said cooperation and projects between India and Russia in areas ranging from energy to defence would not be affected by the sanctions announced by the US, the UK, Australia and several other countries.
“Russia and India don’t recognise such unilateral sanctions that are illegal and confront the UN Charter and international law. These are a major tool of the West to pressure other countries and to establish a unipolar world order,” he said.
“This has not happened just yesterday. Russia has been under sanctions for long years. The Russian system is strong enough to withstand such sanctions. It won’t affect our cooperation, including in defence, which is in the national interest of both countries,” he said.
“We have learnt to use other routes for our projects,” Babushkin added.
A crucial concern for India, however, is the potential impact on defence projects that have already been concluded – such as the $5.4 billion deal for five regiments of S-400 air defence systems – or are in the pipeline. In recent years, the two sides have worked out arrangements that bypass the US and Western financial systems for payments for such deals.
According to official data, India’s mercantile exports to Russia in 2021 were worth $3.3 billion, and its import were valued at about $8.5 billion, including petroleum and petroleum products worth $4.5 billion. India exports pharmaceuticals, telecom equipment, marine products, automobile components and tea to Russia.
Russia is important for India because it is one of the main suppliers of defence hardware and technology, and state-run energy firms have invested in Russian oil and gas blocks. ONGC Videsh Ltd (OVL), Indian Oil Corporation (IOC), Oil India Ltd (OIL) and Bharat PetroResources Ltd (BPRL) have invested more than $13.6 billion in Russian oil and gas projects such as Taas Yuryakh, Vankorneft, License-61, Sakhalin-1 and Imperial Energy, the third person said.
Domestic exporters, however, are concerned. Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations (FIEO), said: “The US has imposed sanctions on the Development Bank and Export Credit Agency in Russia. The UK has imposed sanctions on many banks. Moreover, Russian-flagged vessels are also under sanctions. These are alarming signs for ex-im trade as more sanctions seem to be in the offing.”
He said the US sanctions generally prohibit any transactions in US dollars and thus trade with Russia in that currency is likely to be affected.
“The disruption is likely to lead to inflationary pressure globally and a sign of the same is visible in northward movement of energy prices. The insurance cost of logistics is likely to go up with the fuel cost, which will push freight as well. We are hoping that some relaxation, under the wind-down period, may be given to supplies which are in the pipeline so that exporters and importers, whose goods are at ports or on ships, are not impacted by sanctions,” he said.
“The situation has added to uncertainties, both for exporters and importers, but we hope this would not cause setbacks, especially if the issue gets diplomatically resolved in a short span of time,” he added.
Meanwhile, the Directorate General of Foreign Trade (DGFT) on Friday set up a helpdesk “to monitor the status and related difficulties being faced by stakeholders on Russia/Ukraine” trade related issues, a commerce ministry official said.